Daily Recap – Calm After the Storm…

Posted on September 7, 2011 by Michael Pacheco

A day after some of the most violent spikes, drops and movements many have ever seen in FX trading, today’s price action was minimal.

Yesterday’s historical statements and actions taken by the Swiss National Bank caused the Greenback to move approximately 800 pips versus the Swissy and the Sterling and Single currency both gained 1000+ pips on the Franc, respectively.

 

Traders that rushed to their terminals today in anticipation of another wild day for the CHF found that lightning rarely strikes the same place twice and were bored by the sideways action. A 1 hour chart almost resembles a EKG machine for a patient whose time has passed. Flat line.

 

Yesterday’s dollar strength was replaced today as President Obama’s expected Thursday announcement of a 300-400 billion dollar economic boost package lifted stocks, snapping a 3 day losing streak.  The rush towards risk was a catalyst for the USD to give up some ground to its main rivals the EUR and the GBP. Commodity currencies also faired well vs the Dollar as the Kiwi, Loonie and Aussie traded higher, the latter due to solid GDP numbers coming from down under.

 

The charts and examples found on this website are educational examples and are not intended to be representations of profits or losses that can be achieved through forex trading. When reviewing any such examples, please keep in mind that past results are not necessarily indicative of future results.

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Daily Recap – Triangle Chart Patterns

Posted on September 6, 2011 by Moheb Hanna

Trading the financial markets is a complicated process for traders. It’s rarely easy to anticipate market moves, otherwise we would all be rich by now. Traders constantly look for tools that assist them in making decisions and anticipating market direction for a specific currency pair or a financial instrument. Since financial markets have existed, there have been many dramatic changes which have affected the plight of the speculator, including the advent traceable instruments, as well as huge advancements in different types of analysis and reporting. One factor however has remained somewhat constant, and that is human nature and behavior. Traders now and traders 100 years ago share almost the same human nature and investors’ attitude towards certain market events haven’t changed over time. Due to this constant, certain observable formations on price charts can reflect investors’ attitudes towards a certain event, regardless of whether it occurred today or a 100 years ago.

Chart pattern recognition is one of the most favorable tools for traders because it’s considered a leading indicator, meaning it leads future price action and traders are able to plan based on the pattern they see on the chart, as opposed to react. By looking at a simple line chart, traders can identify a pattern during its formation or once its completed and apply trade details based on the pattern. Traders can choose a entry prices and specify stop and limit orders for profit taking and stop loss. We must always remember though, that two traders can be looking at the same chart and each of them can view a pattern differently. Many factors play into this such as experience.

There are many different types of chart patterns; some are not that common, but some of them are widely used and every trader must know about them. Widely relied upon patterns include head and shoulders, wedges, flags, triangles, tops, and bottoms.

Triangles reflect consolidation which presumably leads to trend continuation. As you may well know, there is more than one type of triangle that traders can see forming: symmetrical, ascending and descending triangles are the most common. Today we picked a descending triangle pattern as an example. We recognized a triangle pattern still in the formation process on the EUR/USD daily chart. A descending triangle is characterized by a relatively flat support line and decreasing downward sloping resistance line. This formation potentially reflects consolidation during a downward trend and is sometimes interpreted by chartists to be an indication of continuation. An ascending triangle potentially tells the opposite story.

We can see a formation of a descending triangle on the EUR/USD daily chart. There is a line of support around the 1.4000 level for the EUR/USD which represents the horizontal flat side of the triangle. Traders can plan their entry price, stop order and limit for profit taking using the pattern and its borders.

To view examples, images and read more about triangles, please follow this educational link from our web site:

http://www.cmsfx.com/en/forex-education/online-forex-course/chapter-3-technical-tools/technical-analysis/triangles-wedges/

The charts and examples found on this website are educational examples and are not intended to be representations of profits or losses that can be achieved through forex trading. When reviewing any such examples, please keep in mind that past results are not necessarily indicative of future results.

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Daily Recap – Stocks Fall Late, and CHF Surges

Posted on September 1, 2011 by Michael Pacheco

Eyeing the stock market during the US session for clues about the direction of the USD, CHF, and JPY – pairs that move up or down closely aligned to overall risk sentiment – did not provide any clear directional signals, until late in the day when stocks began to plunge in anticipation of tomorrow’s big job report.  The Dow closed the day over 1% after having fluttered for most of the day between small gains and losses.  As would the be expected, the USD too spent most of the day going up and then down, only to end the day on a rally relative to most currencies, including the euro, as risk aversion increased in step with drops in the equities market.

 

This morning, new claims for unemployment benefits fell 12,000 to 409,000, slightly beating expectations.  Last week’s figure however was revised negatively to show claims all the way up to 421,000.  Worse still, as we get closer to tomorrow big Non-Farm Payroll release, word is starting to spread that we could see a disastrous number.  The official expected figure is an increase of 75,000 jobs, less than the increase of 117,000 jobs we had last month.  However, the White House today sharply cut their estimates for growth, lowering the expected growth of GDP to 1.7 percent, from the 2.7 percent forecast in February.  The timing of this revision is suspect, and some have interpreted it as a potential sign that early indications for tomorrow’s job report could be shocking.

 

So what do we as currency traders do?  We look at safe haven currencies.  And what has been the strongest of the safe haven currencies of late?  The Swiss franc!

 

Despite rallying over the past 6 trading session to a short term high of 1.1970, the EUR/CHF dropped over 500 pips today!  (A drop in the EUR/CHF represents strength for the CHF)  Could the smart money be moving to the safe haven in anticipation of some bad news?  It is certainly possible.  With a recent low in the pair of 1.0080 or so, there is still plenty of room on the downside for the pair to test.

 

The two charts below are from VT Trader.  On the left we see the EUR/CHF daily chart, which highlights the severity of today’s move.  On the right is the EUR/USD on the 30 minute timeframe, highlighting some of the choppiness we saw during today’s forex trading session.

 

 

 

The charts and examples found on this website are educational examples and are not intended to be representations of profits or losses that can be achieved through forex trading. When reviewing any such examples, please keep in mind that past results are not necessarily indicative of future results.

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Daily Recap – Dow Takes an Early Jump, USD Falls

Posted on August 31, 2011 by Michael Pacheco

A choppy day of equities trading led to an equally erratic session in the currency markets. Especially as related to the USD,  stocks jumped up out of the gate at today’s morning bell, causing the Greenback to sell off. Once traders digested lunch, the afternoon session brought on profit taking of shares lifting the George Washington higher.

 

The Dollar and the Dow typically have an inverse relationship. When risk appetite is high investors liquidate the more conservative positions in their portfolio, often US treasuries, in pursuit of more aggressive riskier assets that offer a bigger potential return, often individual stocks or mutual funds. On days when you see the Dow sell off, it is usually accompanied by a flight to safety in which investors flee riskier assets in pursuit of safer grounds.

 

With this morning’s spike in the Dow, the USD fell – with the afternoons session reversal the USD pared it losses across the board especially against the three main commodity currencies; the CAD (Canadian dollar), NZD (New Zealand dollar) and AUD (Australian dollar).

 

The EUR fell versus the USD and the GBP today when rumors that Greece had acquired counsel to look into a possible exit from the Eurozone were denied.  Never a dull moment……

 

The charts below, from VT Trader, show the EUR/USD and AUD/USD, both 30 minute charts.  Indicators shown include the Directional Movement Index, BiColor Moving Average, and MACD.

 

The charts and examples found on this website are educational examples and are not intended to be representations of profits or losses that can be achieved through forex trading. When reviewing any such examples, please keep in mind that past results are not necessarily indicative of future results.

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Daily Recap – Market Gaps

Posted on August 30, 2011 by Moheb Hanna

Market gaps happen often in financial markets, sometimes during the market trading hours and sometimes during a weekend or long vacation when the market is closed. Gaps are simply sharp price moves from one level to another without trading at each different price tick in between, leaving a blank space on the chart where price action is interpreted. Some traders, if not the majority, try to anticipate the type of gap and the reason that it happened. This is for the sake of trying to make a profit based on analyzing the gap move in the market. Gaps can happen on any time frame chart and the longer the time frame, the more significance this gap might have.

Gaps can occur based on fundamental or technical reasons. From a fundamental perspective, for example, a report or an announcement during market opening or closing hours which caused a big market move can create a gap. It could also be caused by a technical reason, such as a formation of a clear chart pattern which could push the price quickly to a different level creating a gap.

There are different types of gaps and the hard part is to decide which type a gap is. If a trader anticipates the gap cause correctly, then he/she can make a decision which could be profitable. To be able to decide gap types, it takes some trading experience, and errors are always possible. As mentioned before, technical analysis is an art of probabilities and nothing is ever guaranteed. A trader must understand the gap type and the reasons behind it. Let’s look below at different gap types:

- Breakaway Gaps.

These are the gaps that occur at the end of a certain price action or pattern and could signal a change in underlying trend.

- Exhaustion Gaps

This type of gap occurs after the market finishes a trend. They most often occur on weekends, when traders who still believe the existing trend is in place come in at market open hours to try to position themselves at the first moments of market open. Usually the price will reverse and the market will move against the gap.

- Common Gaps

Common gaps are the gaps that happen during trading hours or off market hours without a clear reason. It is simply a change in price which could be resulting from several factors. In traders language, they would say the market gapped up or gapped down.

- Continuation Gaps

This type of gap usually occurs during trading hours and within a price pattern or price action. It means that there was a rush of buyers or sellers coming into the market at same time which caused the price to move and gap up or down.

A rule of thumb which we must bear in mind is that most gaps usually get filled within the same trading day that they initially occur. There are some exceptions though. For example, if it’s a breakaway gap, it doesn’t make sense that the price will go back to the same level where it gapped, but it will tend to fill the gap, even if it just touches the price level where the gap is before traders quickly take the price back to where it should be.

The VT Trader chart below shows the GBP/CHF daily chart, with a major price gap which occurred several days ago.

The charts and examples found on this website are educational examples and are not intended to be representations of profits or losses that can be achieved through forex trading. When reviewing any such examples, please keep in mind that past results are not necessarily indicative of future results.

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Daily Recap – Risk returns as Hurricane Irene exits Northeast

Posted on August 29, 2011 by Michael Pacheco

A day after Hurricane Irene tore through the Eastern Seaboard, the financial district in lower Manhattan reopened and resumed business with far less damage than anticipated. (Thank God for that.) With most traders rushing to their terminals to check out the price of Gold, it was another commodity that stole the spotlight. Coffee, that’s right, I said coffee. Apparently this weekends NYC shut down didn’t allow the local Starbucks to receive its normal delivery of the valuable bean and this sent Wall St workers frantically searching for their morning cup of Joe. Which certainly gave a boost the the local deli’s known more for their egg and cheese on a toasted bagel sandwich , then coffee. However by noon, all had returned to normal and Starbucks was back in business.

The Dow rallied up over 250 points today led by major banks. This ‘take on risk’ attitude pushed the USD lower and the EUR traded back over 1.45. The AUD/USD broke through short term resistance at 1.06 and is currently less than 25 pips away from 1.07. Traders are eager to see if this trend continues through the Asian session which is now underway.

The USD/CHF continued its climb north after being completely beat up in the past couple of months. With the Swissy weak across the board the Greenback took advantage and traded well above 80 and even hit a fresh 6 week high just under 82.40.

In summary, it looks as if risk is back in play and that should make for an interesting week.

 

The charts and examples found on this website are educational examples and are not intended to be representations of profits or losses that can be achieved through forex trading. When reviewing any such examples, please keep in mind that past results are not necessarily indicative of future results.

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Daily Recap – Nervous traders await Jackson Hole

Posted on August 24, 2011 by Michael Pacheco

With Traders eagerly or as some might say nervously awaiting Fridays pow wow, in the hometown of the most awesome ski resort on the planet, todays action was far less dramatic as in weeks past. However as usual in FX there was some good movement. The EUR sold off to the point where it broke 1.44 until it staged a late comeback and recovered to about 40 pips off of its low.

Gold took a major hit and that boosted the USD across the board, further explaining early morning weakness in the EUR. The sought after metal fell off a cliff – giving back weeks of solid gains trading as low as $1745 an ounce a far cry from the high of $1911. If you got into the gold rush late…..Ouch!

The FX trade of the day was to short the GBP when comments from the BoE were perceived as dovish. The pound fell against pretty much everything and anything. For those that trade the news, this was an obvious one.

The charts and examples found on this website are educational examples and are not intended to be representations of profits or losses that can be achieved through forex trading. When reviewing any such examples, please keep in mind that past results are not necessarily indicative of future results.

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Daily Recap – Heikin-Ashi Candlestick Chart

Posted on August 23, 2011 by Moheb Hanna

Chart patterns are one of the most relied upon ways to anticipate a market move, whether it’s in currency, commodity, equity or bond markets. Most traders use the Japanese candlestick charts because it offers traders the vision they are looking for, but today we want to focus on the Heikin-Ashi candlestick chart.

Most traders are familiar with traditional Japanese candlesticks. They are the green and red, or black and white bars you normally see on the default setting of a chart, and they show visually the open, high, low, and closing prices for any given period of time. If you aren’t familiar with candlesticks, for more information check out our candlestick education section.

Heikin-Ashi candle charts are a way to view the market with less volatility than what’s really happening and this is because of the way it is formulated. if we look at the formulas used to create the Heikin-Ashi charts we will see that it’s totally different than the standard candlestick charts.

Close price = (Open+High+Low+Close)/4

Open price = (Open(Previous Bar) + Close(Previous Bar))/2

High price = Max(High, Open, Close)

Low price = Min(Low, Open, Close)

Based on the above formula we can expect to see a candle stick where volatility of price action has less of an effect. The same chart patterns that traders look for and try to apply on the standard Japanese candlestick charts also apply to the Heikin-Ashi chart. If we look at the attached charts and compare the same candle on both types we can see that the Heikin-Ashi offers a view that absorbs part of the excess volatility leaving the pattern more clear to the viewer.

We have attached an example of a head and shoulder pattern that has formed on the NZD/USD daily chart. We have been looking at this pattern formation for a while. Today’s candle changed the pattern slightly on the traditional Japanese candlestick chart, however on the Heikin-Ashi chart the pattern still looks the same. A good example of using an alternative chart type to cancel out some of the noise in the market.

The charts and examples found on this website are educational examples and are not intended to be representations of profits or losses that can be achieved through forex trading. When reviewing any such examples, please keep in mind that past results are not necessarily indicative of future results.

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Daily Recap – Mixed Start to the Week

Posted on August 22, 2011 by David Ramirez

Going into today’s trading week, the dollar was mixed through the Asian to the US session. News over the weekend about the Bank of Japan and the Japanese finance minster, Yoshihiko Noda, considering easing monetary policy if the JPY rises further put bearish pressure on the currency. Global equities markets however were not as volatile as previous sessions.

The EUR/USD ranged today from 1.4346 to 1.4433. The EUR started out stronger in the overnight session, but the USD rallied back to recoup its losses later in the day.

On the equities front, the Dow Jones Industrial average and the S&P 500 ended higher after a choppy session, +37.00 (0.34% change) and +.29 (0.03% change) respectively. Commodities like oil rallied on the lower dollar in the early session and on some political tensions out of Libya. It settled at $84.34 a barrel, up $1.93 for the day. Gold also took flight up $45.60 to $1,897.80 a troy ounce, also from the weaker dollar in early sessions.

For the week ahead, look out for on the US front New Home Sales data in which we can see the gauge of economic momentum and if there is an increase in people’s confidence to buy a house. Then on Wednesday we’ll see Durable Goods Orders, which is a leading indicator of industrial production and capital spending. Thursday we have Jobless claim data, where we can hope that the trend takes a turn for the lower by staying below the 400k mark. Friday is an important day for data and speeches starting at 8:30 am (EST) with the Gross Domestic Product number in which we can comprehend the total value of the US production and economic activity. Then at 10 am (EST) Fed chairman Ben Bernanke will give a speech in Jackson Hole, Wyoming, where we have to pay attention to the language he uses on the status of the economy.

The charts and examples found on this website are educational examples and are not intended to be representations of profits or losses that can be achieved through forex trading. When reviewing any such examples, please keep in mind that past results are not necessarily indicative of future results.

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Weekly Recap – Gold, Green and PIIGS on the Wing

Posted on August 19, 2011 by Andrew Vays

It seems European countries are intent on achieving fiscal responsibility when pigs learn to fly. It would appear that day may be closer than many think. This week’s EU meeting minutes sent financial services stocks plummeting as the meeting was initially viewed as just another opportunity for an economic censure of its weaker members without presenting a long-term viable solution.  Despite the markets’ initial reactions, once analysts had a moment to truly digest what was said and how the future of the Euro-Zone may play out, the euro began its first substantial rally in some time.  France and Germany appear unable or unwilling to provide further capital to prop up the Euro-Zones fledgling economies. While this isn’t exactly new news, what was substantial is their commitment not to abandon the euro which left a bit of a logical gap. How do you continue to grow the euro and its auspices while pretending its weaker members aren’t really about to drag the whole union into bankruptcy? The answer is surprisingly simple. If they can’t hack it, you let the PIIGS fly!  This sent the euro soaring as traders began to salivate at the notion of a leaner and more stable euro anchored by its wealthier and fiscally responsible members.

Across the Atlantic the U.S. had a relatively tepid week comparatively as it continues to reclaim some of the ground it lost amidst its own fiscal crises. As apathy begins to set in over the prospect of a US default and the global economy shows signs of a slowdown, treasuries rallied this week helping restore faith in the Greenback and its role as the world’s reserve currency.  While the rally in USD helped bears breathe a little easier, not all was rosy as a flurry of sour economic data created more questions than it answered. Unemployment Claims jumped over 1% well past most analysts’ estimates. Existing Home Sales not only disappointed analysts expectations but actually declined from the month prior. Abysmal numbers out of the Philly Fed Manufacturing Index rounded out the week’s disappointments and added to speculation that we are indeed headed towards a second slowdown in less than 5 years.

Gold continued its epic surge as it reached a new record high of $1877 an ounce before settling around $1851.  Further buoying gold’s advance, an announcement by Venezuela which posses the world’s 15th largest gold reserve to recall $11B in reserves from financial institutions around the globe. The move was made alongside further commitments from Venezuela’s political echelon to increase domestic gold production and nationalize its gold mining industry. While scientists have yet to discover a way to make money grow on trees, apparently some have settled for the prospect of plucking it from the ground. Perhaps it’s time for Goldman Sachs to invest some serious resources in alchemy and its practitioners?

 

The charts and examples found on this website are educational examples and are not intended to be representations of profits or losses that can be achieved through forex trading. When reviewing any such examples, please keep in mind that past results are not necessarily indicative of future results.

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